By Viktoria Ruubel, Chief Product Officer at IPF Digital
The power of partnerships should never be underestimated. Nowhere is this truer than in the financial services industry, which is undergoing a significant shift as the ecosystem is increasingly dominated by partnerships rather than solo enterprises. Competition is intensifying, and we have already seen that tech giants Google, Apple, Facebook, and Amazon are all taking steps to break into the financial sector. Partnerships are critical to staying ahead in a crowded market: partnering with the best companies specializing in a niche area saves time and resources, improves product time to market, and helps to accelerate the business’ learning curve.
Borders are getting blurred: a few years ago, no one would have anticipated the extent to which big industry players have invested in and become reliant on partnerships. Large established banks are partnering with fintech startups; financial players and retailers are partnering to bring new services to their customers; and established financial institutions are partnering with enterprises they traditionally regarded as competitors in order to extend their business into new customer segments.
‘Amazon can do it all; all others must partner,’ this was the key message from this year’s Lendit Fintech conference in San Francisco, where big fintech companies were describing how they plan to use partnerships to improve their customer experience, technology, distribution or acquisition channels, as well as access to top talent. Businesses in the financial industry, no matter their size or location, should be partnering with distributors, technology vendors, small niche innovative companies, players from other industries, or even with competitors to gain an edge in the crowded marketplace.
However, partnerships must be aligned with the company’s strategy and values; and they should benefit both partners in order to ensure long-term alignment and the longevity of the collaboration. There are multiple reasons as to why businesses and fintech companies utilise partnerships to meet their strategic objectives:
- New or improved technology capabilities
This is the most common type of fintech collaboration we see – where a fintech company or software development company provides its underlying technology or software to banks and other financial institutions in the form of a white-label. For the financial institutions, the partnership means they have immediate access to the latest, state-of-the-art technology stack or a new capability to expand faster into new markets or to reach new customer segments without in-house development efforts. It speeds up time to market and helps with lowering the costs that would otherwise be required to build the new capabilities from scratch in-house. Meanwhile fintech startups get access to low-cost funding through a trusted partnership, and the software providers invest in adding new capabilities to their portfolio of services. There are many examples of this type of partnership including OnDeck and JPMorgan Chase, and Mambu and N26.
- New acquisition channels
One of the real challenges facing any high-growth oriented company, be it a young challenger bank or a mature fintech aiming to speed up its scaling, is finding and sustaining efficient customer acquisition channels. Partnering with organisations with an existing, large customer base is appealing as it provides access to hundreds of thousands of customers that can benefit immediately from the attractive fintech offering. Meanwhile the partner provides additional value to their customer base and adds the possibility of new monetization opportunities. A great example is the collaboration between Affirm and Walmart announced in February this year.
- Improved digital customer experience
Customers are increasingly turning to digital channels to manage all aspects of their life; financial services is just one industry being revolutionised by digital. With customer expectations for a seamless service ever-increasing, providing fast, convenient digital services has become critical for banks if they want to keep customers satisfied and sustain their competitive advantage. For established banks, partnering with a fintech organisation offers an accelerated path to providing the best customer experience, which can be difficult to develop in-house due to outdated systems. At IPFD, we have partnered with several technology providers including Kontomatik, ElectronicID, Beometric Vox and others, to provide a seamless digital onboarding experience for our customers.
- Serving new customer segments
By combining their resources and brand power with the innovative solutions created by fintechs, banks will find they are able to serve new customer segments. Such partnerships allow banks to distinguish themselves from their peers and position themselves as progressive financial institutions. An example of this type of collaboration is the partnership launched between Kabbage and ING in 2017, which allowed ING to expand its small business lending into France and Italy. The collaboration also enabled ING to serve their existing customers with greater efficiency and scale and provide a dramatically better customer experience.
- Access to top talent
In a time where there is a battle for top talent across multiple industries, financial services is not exempt from the challenge of finding talented engineers, scientists, and other skilled employees to design, build and serve new digital platforms, products and offerings. It is therefore not surprising that many companies partner with specialized service providers to tap into world’s best expertise. A good example of this is the partnership between Discover Financial Services and Zest finance, who are a leader in artificial intelligence (AI) software for underwriting. They announced a partnership tasked with the creation of one of the largest AI-based credit scoring solutions in the financial services industry. Partnerships of this kind drive faster innovation, and the adoption of new technologies like artificial intelligence (AI).
Partnerships can offer businesses a mix of these benefits and opportunities at one time. More generally, fintech partnerships create a massive opportunity for levelling the playing field, streamlining internal processes, adding technological capabilities, and most importantly improving the end customer experience.
For established financial institutions, there are significant benefits: from fostering internal innovation to ensuring customer satisfaction and retention. Partnerships help businesses to achieve efficiency, enable faster time to market, and ultimately help companies to speed up revenue generation.
The benefits for fintech startups are also substantial. According to McKinsey, the share of fintechs with B2B offerings increased from 34% in 2011 to almost 50% in 2016.  This demonstrates that startups are moving away from providing purely B2C products to partnering and offering products or services to established financial institutions which control the relationship with the end customer. This enables the fintech business to gain access to funding without giving away equity, secure an alternative monetization mode and, in some cases, even develop a new strategy.
Increasingly it seems that for companies trying to carve out an edge in the fintech sector, partnering is no longer merely a viable option, but a business necessity.